A legislative addendum that aims to regulate the gold industry to keep “conflict gold” out of the United States passed as part of the Dodd-Frank Wall Street Reform and Consumer Protection Act, a financial reform bill that was approved by the Senate Thursday and is poised to become law.

On Monday, Jewelers of America sent out an alert to warn jewelers that the legislation, which was aimed at reforming Wall Street, could be a “nightmare” for the jewelry industry if enacted, and JA called for industry members to contact their U.S. senators to ask them to defeat the addendum (Section 1502). The provision sets up a major logistical challenge for jewelers, who would have to ensure that the gold they buy is not subsidizing conflicts in the Democratic Republic of Congo as well as nine surrounding African countries.

The Dodd-Frank bill passed in the U.S. House of Representatives last month, before passing yesterday in a 60-39 final vote in the Senate. President Obama is expected to sign the bill into law next week.

While primarily focused on financial reform legislation, the Dodd-Frank gold provision would require that companies using gold as well as the minerals coltan, cassiterite and solframite file annual reports with the Securities and Exchange Commission (SEC) regarding the source of those materials. According to JA, compliance with the gold provision would likely require that companies hire a third-party firm to audit and validate their gold-sourcing reports.

If a company’s gold or minerals did originate from one of the 10 African countries included in the bill, then that company would have to show what steps they took to trace their materials back to their source. The provision also dictates that materials information be placed on a company’s Web site for public review.

On Friday, JA released a statement in response to the bill’s passage, saying “While we strongly believe in the goals of this legislation, we are very concerned that the bill–as passed–could encourage jewelry companies to avoid trading in gold from the region, in order to bypass the issue completely. Of course, this unintended consequence will help no one, and end up hurting legitimate miners and their communities. Therefore, we hope to work with the U.S. Securities and Exchange Commission (SEC) regulators and both industry and non-industry stakeholders to ensure that implementation achieves its goals, without hurting jewelry businesses or the very communities in DRC and neighboring countries that it is meant to benefit and protect.”